Four at Four: Carmakers To Offer Free Cars to Spur Car Sales

By David Gaffen

March’s figures on automotive sales are due for release Wednesday, and they’re not going to be good. Not when Ford Motor and General Motors once again offer big incentives to try to jump-start sliding vehicle sales, which are expected to come in at a dismal rate – around 9.5 million in seasonally adjusted annual sales. Fritz Henderson, the new CEO of GM, said at a press conference that no auto maker can be successful with annual sales at that level, necessitating big efforts to “bring customers back into the equation.” That seems to involve to giving away as much as possible. As anticipated, 0% financing is part of the deal, but Ford and GM also announced incentives to cover payments for those who lose their jobs. Ford’s deal, which runs until June 1, will cover payments for up to 12 months on any new Ford, Lincoln or Mercury, while GM’s offer is for nine months of payments up to $500 a month, and it also said it would protected the retail value of a new vehicle when it’s time to trade it in. Customers who also do not happen to be auto mechanics may have a few questions, however. For instance, with the government announcing that they will guarantee Chrysler and GM warranties, what about the newest offer from GM and Ford, which involves picking up payments? If the companies go into bankruptcy, will payments be made up by the government? The incentive to actually purchase a car from GM in this scenario actually declines, although the hope is that eventually, many are enticed by the discount rates, and that brings buyers into the showrooms. And then, there’s the ongoing lackluster economic environment. “People are being conservative…and a large segment of this population simply can’t get a vehicle loan,” says Joel Naroff, president of Naroff Economic Advisors.

It’s a funny world, where the major averages post one of their best months in recent memory, and yet for the year, the indexes everyone follows have been handed their heads. Tuesday’s gains restored a bit of investor faith after Monday’s selloff, and left the Dow industrials with a 7.7% gain for the month, the best one-month performance since October of 2002. But the January-to-February rout inflicted more pain, as the 30-stock average fell by 13.3%, the worst first quarter since 1939’s first quarter, when the market dropped 14.8%. The Chicago Board Options Exchange Volatility Index fell 3% to 44.14 Tuesday, but the stock market has remained highly volatile and dominated by short-term traders. Many long-term investors are hiding in Treasurys and cash, and the VIX index suggests plenty of hedging against future drops by those buying stocks. Still, bulls hope the end-of-quarter rush by mutual funds to load up on the stocks that led the rally could be a harbinger of future behavior if the gains stick for much longer. “We’re long-term guys and while the market isn’t as bad as last fall when it was so liquidity driven, never knowing what the day is going to hold for you has had an impact,” said Michael Petroff, a portfolio manager with Heartland Advisors. Mr. Petroff and other longer-term investors, who include retail investors as well as pension funds, say they are nowhere near as invested in stocks as they were in years past. They’ve also shrunken the timeline on any stock they own, as the fortunes of perennials such as General Electric have lessened faith in the “buy and hold” strategy. –With Geoffrey Rogow and Rob Curran

President Obama’s overseas trip to the G-20 summit in London, which begins Thursday, underscores the direction investors are turning for market-moving news – east (and further east). In addition to the G-20 meeting, the European Central Bank will make its decision on interest rates for the euro zone, and Japan’s influential tankan survey will also be released. The expectations for the tankan are not strong – a reading of minus 54 is expected for this indicator, as the deterioration in exports as a result of the yen’s surprising strength against most other world currencies has cut into revenue in that country. “I would say at this point in time, it’s definitely going down and there’s not much question about that,” says Brian Bethune, chief U.S. financial economist at Global Insight Economics. Meanwhile, the ECB is expected to reduce interest rates on Thursday by half a percentage point to what would be a record low of 1% in an effort to spark economic growth in the region, which is looking worse than other regions of the world, as regulators there responded more slowly to the economic decline. “We think a cut would be warranted, based on the state of the euro zone which has unraveled at an incredibly fast rate,” Mr. Bethune says. Overall, world economic trouble appears likely to continue, as the Organization for Economic Cooperation and Development said today it is anticipating the sharpest contraction in more than 50 years across member nations.

Analysts have noted that in the last several years, world markets experienced a convergence of correlation – assets that formerly were not known for moving together started to do so with greater frequency. Part of that was the result of securitization, which, analysts at Goldman Sachs Global Markets Institute say, demonstrates how what was good for an individual or an entity was not good for the greater global economy. Just as reducing spending in favor of saving is a prudent course for an individual, a collective decision to do so has detrimental effects on the economy. The same could be said for securitization, which, for a time, allowed companies to “reduce risk at the firm level and free up capital for lending.” However, because regulation in this area was relatively lax, various institutions ended up raising their leverage and lowering their capital to the breaking point – and they used that leverage in pools of risky assets. As a result, these investments “raised correlations across countries and across sectors of the financial industry, essentially turning the financial system into one highly correlated shared risk pool,” they write, in a larger report on designing effective regulation for the intertwined global environment. They conclude, among other things, that asset bubbles “cannot simply be allowed to run their course,” as the moves to protect systems against small shocks “increased the system’s vulnerability to global and macro shocks.”

Um...if GM and Chrysler are gone, then that pretty much leaves only Ford. That seems a no-brainer. While I'd normally say that Ford will have a monopoly, I don't think that's the case....unless they really do come out with an affordable 60mpg car.
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I looked at a parking lot filled with cars the other day. I saw a lot of Toyotas, Nissans, some Subaru’s, Hondas, Hyundai, a few VW's...get the point. The only GM's and Fords I saw were a couple of trucks.
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Let’s face it, the younger car nuts of today love, forgive me if I misuse the term, ‘rice-burners’. They are not running out and buying the latest Mustang. Soccer moms are switching back to smaller foreign sedans. Dad is either carpooling to work, getting dropped off by the wife or also driving a smaller foreign sedan.
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I can see Fords stocks jumping if GM goes belly up, but that doesn’t mean they’re the only kid on the block and it sure as H-E-double-hockey-sticks doesn’t mean they can turn a profit.
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So unless Ford is about to unveil a cheap, safe, easy-to-use “magic-flying-carpet”, I wouldn’t put too many eggs in their basket for too long.
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Good Luck

2:27 am April 1, 2009

larry wrote :

No, there's not a lot of information here... just a lot of gibberish and nonsense

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